Optical/IP Networks

Alcatel in China: Fortune Cloudy

Alcatel SA (NYSE: ALA; Paris: CGEP:PA) yesterday announced plans for a joint venture that will give it a new channel for selling its optical fiber in China (see Alcatel Plans Joint Venture in China).

The move is the latest in a series of puzzling maneuvers by companies jostling for position in China's fiber market (see Furukawa Looks to Cable China). And it looks as if the move could be either well- or ill-advised.

On the one hand, the Chinese market is tough to get a bead on. "The fiber market in China is very dynamic, very complex," says Patrick Fay, analyst at KMI Corp., which follows the fiber market. He says that while his firm still views China, after Japan and the U.S., as one of the top three fiber markets worldwide, economic factors have reduced KMI's forecast for fiber installation in China.

"At the end of last year, we thought 11 to 11.5 million kilometers of fiber would be installed in China this year," Fay says. "Now it looks more like 7 to 8 million km. So there's been some downsizing in anticipated deployments."

Indeed, recent financial news from other market leaders with heavy investments in China couldn't be worse. Corning Inc. (NYSE: GLW), which, according to KMI, shares over 50 percent of the worldwide fiber market, along with Alcatel and Lucent Technologies Inc. (NYSE: LU), has acknowledged the China market hasn't panned out as planned (see Corning: 'We've Hit Bottom').

Recently, Corning has been bleeding losses, despite having its own joint venture in China (see Corning: 'We'll Do What It Takes' and Corning Works China).

Does this mean Alcatel's on track for disappointment? It's tough to tell. Certainly, it relies on fiber to some extent, which makes new ventures risky. The company won't say how much revenue it gets from its fiber business. But last quarter, Alcatel's optics division, which includes optical fiber, represented €1,969 million (US$1,915 million), while the entire company reported quarterly sales of €4,235 million ($4,120 million).

Alcatel's also been active in China for awhile. One key investment has been a 50 percent stake in Shanghai Bell (now Alcatel Shanghai Bell Co. Ltd.), a local exchange carrier. Apparently, that deal indicates Alcatel's relative success in scoping China's business landscape.

Alcatel also has something else sussed -- the need for a government partner in the fiber business. In this latest joint venture, it's pairing up with Fiberhome, a company affiliated with Wuhan Research Institute, which is referred to as a "national research base" for China's government and which has sponsored a range of telecom companies through joint stock ownerships.

What's more, at least one source, who asked not to be named, says not all companies experience the same level of difficulty when it comes to the Chinese telecom market. Alcatel, for instance, may find doors open to it that have been closed for others -- and vice versa.

In the end, while the China fiber market remains volatile and mysterious, it looks as though at least some opportunity may be present. And if it is, Alcatel appears to have as good a shot as any.

— Mary Jander, Senior Editor, Light Reading
polar007 12/4/2012 | 9:47:46 PM
re: Alcatel in China: Fortune Cloudy
News (unofficial of course!) is out that they are currently testing with China Telecom for the RPR product family.

Any truth to this?
opticaltalent 12/4/2012 | 9:47:44 PM
re: Alcatel in China: Fortune Cloudy
I would also like to know if anyone knows anything about Lantern and a lab trial with China Telecom. If they get a deal with CT it could save the company, if the rumor is false I do not know how much longer they have. Hardly any revenues (if that) and a big burn rate...which confirms my new theory "Companies need revenues to stat in business!!!"
Xiang_Qi 12/4/2012 | 9:47:40 PM
re: Alcatel in China: Fortune Cloudy China US
Pop (Mil.) 1,300 280
Land area (million km2) 9.6 9.6
Teledensity 10% 65%
Fiber density (fiber-km) 3 52
Fiber coverage (1 fiber-km/#) 33 2
Fiber-km/km2 (of land) 3.8 15

Clearly, China has room to grow, if we compare to US penetration.

Alcatel is the world's only end-to-end supplier of fiber optics. It has the vision to go the long march and a European calling card that offsets North American ambitions.

China has it own bubble: brought on by insolvent banks, natural resource depletion, bankrupt state enterprises, and rising unemployment in the urban areas. Overinvestment and a lack of mature VCs in the fiber optics space have already left 10s of thousands un/underemployed. We see the bubble repeated, yet at the same time fiber optics tireless roll out to the worldwide home.

lightrain 12/4/2012 | 9:47:39 PM
re: Alcatel in China: Fortune Cloudy Mary, identifying Shanghai Bell as a local exchange carrier doesn't show much understanding of Alcatel's position in China.
wilecoyote 12/4/2012 | 9:47:36 PM
re: Alcatel in China: Fortune Cloudy I like this company, would like to see it work out. But even if they get the contract, CT will re-negotiate the deal as Lantern management is flying home to celebrate, and then take 180 days to pay, best case.

arak 12/4/2012 | 9:47:36 PM
re: Alcatel in China: Fortune Cloudy Shanghai Bell is a manufacturer of landline switches and wireless MSCs. Alcatel became a minority shareholder in Shanghai Bell some 2 or 3 yrs ago, and is now trying hard to get back majority control. The switch being made by Shanghai bell is based on the original Stuttgart model by Alcatel which dropped it for some reason.
lightrain 12/4/2012 | 9:47:34 PM
re: Alcatel in China: Fortune Cloudy Instead of "2 or 3 yrs ago" make that 20 years ago. Substitute Stuttgart with Antwerp. Drop "dropped". As there were no other facts in yr msg, the rest was ok.
deepciscothroat 12/4/2012 | 9:47:33 PM
re: Alcatel in China: Fortune Cloudy WC
Lantern management team looks VERY weak
wilecoyote 12/4/2012 | 9:47:33 PM
re: Alcatel in China: Fortune Cloudy Agree, the team is weak. Don't know if they can even deliver this product. Or when they do, can they sell it to more folks than the Chinese where they'll go bankrupt waiting to get paid.

Product is VERY late. I like the category though and any success a startup can show is a good thing for lots of people. So I wish them well.
OpticalValueLine 12/4/2012 | 9:47:03 PM
re: Alcatel in China: Fortune Cloudy Seems you know Chinese Market quite well. Could you please contact me [email protected]?
We can discuss more.

Thanks. JY
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